Who Wants to Buy J.C. Penney? No One

J.C. Penney Co. Inc.'s (NYSE: JCP) board has a problem. If it wants to sell the company, in lieu of kicking out Ron Johnson as CEO, as the Wall Street Journal has reported, it may find that there is no buyer. What retailer wants a company that has lost 20% of its sales in the past year and has 1,100 aging stores? Some observers think that the J.C. Penney real estate holdings have a hidden worth. The drop in the firm's stock price would indicate otherwise.

It might be argued that J.C. Penney is a bargain. Its market share is $3.3 billion. Its annual sales run rate is almost $13 billion. It lost "only" $985 million last year, but the rate of those losses has accelerated.

The most obvious reason that J.C. Penney could be attractive to another large retailer is that many of its 1,100 stores have to be losing money. If those stores are shuttered, losses should abate. But the number of stores is a problem secondary to the merchandising and marketing plans put into effect by CEO Ron Johnson. The failure of those may be hard, if not impossible, to reverse.

No successful retailer will buy J.C. Penney. Better-run companies like Macy's Inc. (NYSE: M)and Nordstrom Inc. (NYSE: JWN) have settled on optimal store locations and store numbers. None of the investors in these public corporations want to see management take a long shot at J.C. Penney.

The only possible buyer of J.C. Penney is Sears Holdings Corp. (NASDAQ: SHLD), which was built by an ill-advised combination of the Sears and Kmart brands. However, controlling shareholder and CEO Eddie Lampert has continued his commitment to middle-tier national retailing. It would be monumentally difficult to put J.C. Penney together with Sears and Kmart. Likely such a combination would involve the closure of hundreds of stores, as well as logistical nightmares. But Lampert has the guts of a high-stakes gambler. The Sears Holdings experiment has been a failure. Another retail combination is a long shot, but it may be his only way out of a severe dilemma.

Even Lampert may believe J.C. Penney is too much of a risk, though. That leaves the J.C. Penney board without options.